Food products and nonalcoholic beverages have been classified as essential goods, and their production, distribution and retailing will continue during the 21-day coronavirus lockdown period. As such, one could expect the impact on the agricultural sector to be minimal, but is that true? 

Intuition would lead one to expect that agricultural exports will be reduced as the Covid-19 pandemic creates mayhem in the global economy. But people have to eat, and logistics and movement of goods are continuing, so food demand should hold. It is therefore difficult to assess the impact of the lockdown regulations, how they are applied and the demand effects of the pandemic on agriculture without unpacking each sector by its subsectors, to enable us to determine who the government should assist in these trying times.

Stats SA has just released the results of its 2017 census of commercial agriculture, which could aid a better understanding of these issues. Speaking at the launch of the census results, agriculture, land reform & rural development minister Thoko Didiza announced that her department has ring-fenced R1.2bn for assistance to mainly small-scale farmers. The question is how they will be defined and how they qualify for support.

The census, based on farms that are registered for VAT, came up with 40,122 active enterprises, which can be considered the official number of “commercial” farms in SA. Many would argue that this is an unfortunate undercount of the total number of commercial enterprises in agriculture, as the threshold for compulsory VAT registration is R1m, and many households that practise commercial agriculture on a smaller scale are therefore excluded. There have been numerous calls in the past for a comprehensive census to ensure a full appreciation of the size and shape of SA agriculture.

So how many commercial farmers are there really? The community survey of 2016 reported 2.3-million households involved in an agricultural activity, which could include home gardens, community gardens, subsistence farmers and commercial farmers. Of this total 148,200 reported that farming was the main source of income, which included the 40,122 registered for VAT. In addition, about 122,200 households practise commercial farming as a secondary source of income.

One can therefore assume that about 230,200 households that practise some form of commercial farming were excluded from the census. Most of these are micro enterprises with gross farm incomes below R500,000 per annum. The best guesstimate for the total gross farm income for these farms could be R23bn-R80bn.

The total gross farm income generated by the 40,122 “commercial” farm enterprises included in the census is reported to be R332.756bn. This illustrates the differences in the operational scale of farm enterprises in SA, but it would still be interesting to know who the other 230,000 farmers are, the kind of farming they are involved in, and the size of their operations.

Micro enterprises

To further emphasise the micro nature of commercial agriculture in SA, the census shows that 62% (24,955) of all commercial farms are classified as micro enterprises. Adding the small farm category (between R2.2m and R13m) means 88.7% of all VAT-registered commercial farming enterprises are classified as small or micro enterprises, representing only 23% of total farm income but 37% of all farm employment.

The 2,610 large farms (turnover above R22.5m) are responsible for 67% of all farm income and employ more than half the agricultural labour force, which was 757,628 people in 2017. (It increased to 880,000 as of 2019).

When the government targets “small farmers” for any intervention, specifically for support in this crisis period, it needs to be understood that this essentially means 88% of VAT-registered farmers (35,588) and the 230,000 commercial enterprises that fall outside the SA Revenue Service (Sars) business register.

Yet there is no certainty on the direct impact of the pandemic on agriculture, which can happen at the farm level (production), on the demand side, or between the two via disruptions to the supply chain, logistics and transport. Based on our interpretations of the regulations, there should be minimal disruption to agricultural production and logistical operations. The exception would be if critical role players such as government inspectors, state veterinarians, port officials and truck drivers are prevented from getting to work.

On the demand side, since large gatherings such as weddings and sporting events are banned, in addition to the closure of restaurants, pubs and liquor stores, the catering trade will be hard hit, especially wine and liquor sales.

Food processors, meat suppliers, bakers, millers, potato and vegetable producers and the wine industry will be hit by reduced demand. This could have a dramatic effect on price and profit levels for wine cellars, potato producers, red meat producers and poultry producers. However, it is possible that the drop in demand from the catering and restaurant trade for certain foods will be offset by increased home cooking and the associated increased expenditure at grocery stores.

Deciduous fruit

The impact of Covid-19 will vary across agricultural subsectors. The horticultural industry represents 24% of the total agricultural income and employs 35.5% of the total agricultural workforce. It will be little affected.

The citrus industry foresees minimal disruption during the 2020 harvest, which started recently, and is forecasting record export volumes this year. As export contracts have not been cancelled, export volumes should hold.

In the deciduous fruit and table grape subsector — also a large export earner — the harvest is complete and should not be affected.

Wine producers contributed about R95bn to SA’s annual agricultural GDP. The measures implemented globally, as well as the collapse of tourism, will affect wine consumption drastically. Exports and domestic sales will fall dramatically, prices will drop, and farm profitability will come under extreme pressure.

The livestock sector, which is responsible for the largest share (52%) of agricultural income, might also be hit by a decline in demand with restaurants having closed. Wool farmers have already been notified of the cancellation of weekly wool auctions during the lockdown period, and with prices already down 14%, cash flow problems will be a major issue for these farmers, who have just survived a major drought.

Field crops — mainly maize, oilseeds, wheat and sugar cane — contribute 23% to SA’s farm income. The effect of Covid-19 on it should be minimal, at least in the near term. The 2019/2020 maize production season will be the second-highest on record at 14.8-million tonnes, and with higher rand prices on the back of the depreciation of the local currency and growing demand from the region, it is likely to be the biggest maize harvest by value.

• Kirsten is professor of agricultural economics at Stellenbosch University and director of the Bureau for Economic Research. Sihlobo is chief economist at the Agricultural Business Chamber of SA.